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Businesses must understand how a reshored manufacturing site would interact with the rest of the value chain.

Four Requirements for Successful Nearshoring

March 1, 2024
Regionalization boosts supply-chain and manufacturing resiliency, speeds time-to-market, and brings other business and environmental benefits to operations that source parts nearer to their markets.

Global manufacturers are increasingly turning to regionalization to boost supply-chain and manufacturing resiliency, speed time-to-market and reap other business and environmental benefits from reshoring part of their operations, to be closer to the markets they serve.

Regionalization has become a widespread trend. In a 2022 McKinsey & Company survey of 113 supply chain leaders worldwide, 44% of respondents, up from 25% percent the previous year, stated that they were developing regionalized supply networks.

However, successful regionalization requires careful planning and a clear understanding of four core prerequisites:

  • Footprint/capacity: the existing manufacturing ecosystem and facilities in-region
  • Supply chain: the process for sourcing materials and shipping products
  • Technology: the advanced manufacturing technologies and technical expertise available in-region
  • Talent: the workforce needed to support operations within the regional manufacturing node

Footprint/Capacity. First, businesses must assess whether they have an existing footprint in-region, and whether they currently have the capacity to support moving part of their operations to a location. For example, a company might already have a factory in North America that is dedicated to manufacturing a specific product line. Beyond the space considerations of adding additional factory lines, leaders must determine whether the factory is equipped with the machinery and resources to support the product line they plan to reshore.

If the current space isn’t sufficient or if a company doesn’t have a footprint in-region, it will have to weigh the cost of building additional facilities against the benefits of regionalization. In some cases, it might be cost-effective to find a manufacturing partner with the regional capacity to support operations for the reshored product line.

Supply Chain. Part of the cost/benefit analysis for businesses considering regionalization is understanding how the reshored manufacturing site would interact with other parts of the value chain. Would it be easier or more difficult to access raw materials? Would it be faster, more reliable, or more sustainable to fulfill orders and get them into customers’ hands once the products have been built? Having a strong supplier network in-region that is transparent, collaborative and responsive is crucial.

Technology. Implementing advanced manufacturing technologies like automation, simulation, additive manufacturing and digitization introduces greater efficiencies into the manufacturing process. Also, considering the footprint/capacity, these technologies can lead to space and materials savings. For example, businesses can invest in a single piece of equipment that serves multiple functions or rely on digital twins and simulation rather than building physical prototypes.

Talent. Of course, businesses cannot simply build a factory in-region and fill it with equipment without a plan for staffing it. Without a dedicated workforce to run operations, the entire plan falls apart. And businesses need to look beyond hiring for numbers—they need to consider the expertise and talent available in-region.

If regional manufacturing sites are outfitted with advanced manufacturing capabilities, they will need a workforce with technical expertise to keep operations running smoothly. Flex has implemented the Capability Acceleration Program to train employees around the world in a range of disciplines, including automation, simulation for future stage modeling, extended reality, and more. At Flex in Althofen, Austria, we established an IIoT Academy and partnered with universities to upskill workers.

Regionalization is a strategy that benefits many businesses, promising greater resiliency, efficiency, and even sustainability. Thinking about regionalization through the lens of these four prerequisites – footprint/capacity, supply chain, technology, and talent – can ensure that businesses reap the full benefits of their reshoring efforts.

Hooi Tan is president of global operations and supply chain at Flex – a Texas-based manufacturer of appliances, electrical, and electronic devices. Contact him at LinkedIn.